By Luis Fierro Carrión (*)
Twitter: @Luis_Fierro_Eco
Econ. Andrés Arauz, today a presidential candidate,
published in his blog on April 20 an article entitled “Bad de-dollarization and
good de-dollarization”.
In the original version, the second “de-dollarization” was
not in quotation marks, and the article mentioned that the new system “could be
nicknamed with a name, that of the new ‘currency’ ”. On November 26, realizing
that the article had generated criticism, he first blocked access, and then
presented a modified version, in which the supposed "good
dollarization" now appeared in quotation marks, and the phrase "new
currency" no longer appeared, but rather the truncated phrase "could
be nicknamed with a name."
At the same time that the debate on the article by Andrés
Arauz was taking place, the correista bloc presented in the National
Assembly a bill to create a "Universal Basic Income" (UBR), which
would be delivered to at least one million heads of families, for 400 units of
the new "electronic currency." An almost identical proposal appears
on page 18 of Yaku Pérez's government plan: "said basic income could be
paid in electronic money."
The RBU proposal presented by Correísmo would start
with 400 units of this “electronic currency”, but it is foreseeable that in a
few months its value would fall, since it is an inorganic issue without any
support or financing. It is worth mentioning that the quasi-currencies issued
in Argentina (“patacones” and others), at the end of the convertibility period,
lost up to 35% of their value; while the Venezuelan “petro”, a digital currency
created by the regime, has lost 85% of its value. Thus, it is not impossible
that the 400 units of this "digital currency" could come to represent
less than the USD 50 of the current human development bonus (a cash transfer
program that already exists in Ecuador).
If the State used this "electronic currency" to
pay salaries to public employees, suppliers, etc., a bimonetary system would
quickly be imposed, in which the "electronic currency" would rapidly
lose value against the US dollar; and there could be a de facto
de-dollarization, seizing bank accounts, restricting access to dollars for
importers, etc.
Arauz's article continues by proposing to raise the “currency
outflow tax” (ISD) to 27%, which would become a “fixed quota” sold by the
Central Bank (five times the current ISD of 5%).
It is worth mentioning that, although this tax is supposedly on the "outflow of currency", in practice it becomes a disincentive
for the inflow of funds for investment, since investors know that, in order to
import machinery, equipment, intermediate goods and inputs, as well as to be
able to extract the dividends earned, they will have to pay this rate (either the
current 5%, or the 27% proposed by Arauz). To this is add that this
"limited quota" would be "granted" by the State,
effectively generating a multiple exchange market, the same one that has led to
major problems (and great corruption) in the countries that have applied it,
such as Venezuela. or Argentina.
One may wonder why would presidential candidates in Ecuador propose
a "de-dollarization" by issuing an "electronic currency",
considering that dollarization enjoys a popularity of 80-90% of the population,
which is understandable, given that the US dollar is a “hard currency” that
generates certainty, and allows long-term investments and loans to be made.
The answer may be that dollarization imposes economic and
fiscal discipline. If exports fall, imports must be restricted. If tax revenues
are reduced, public spending must be restricted. The only alternative, in both
cases, is debt, a mechanism to which the governments of Alianza PAIS in
the last 14 years have resorted, until a public debt of 60% of GDP has been
reached.
Dollarization prevents the financing of the public sector
through inorganic monetary issuance, and also prevents increasing income (in a national
currency) for public or private exporters through devaluation.
Those who promote de-dollarization do so with the ultimate
aim of reducing real wages, causing devaluation and inflation, supposedly to
make Ecuador more “competitive”. During the Correa government, the minimum wage
was increased at a faster rate than productivity, with which each hour of
minimum wage in Ecuador costs twice that of our neighboring countries, Colombia
and Peru.
But a de-dollarization, devaluation, and inflation would
only create more misery, apart from generating uncertainty, lack of confidence,
and a flight of capital.
That is why unions, workers, retirees and others who receive
a fixed income throughout the world have always fought for a “hard currency”,
which does not bleed in the midst of inflation (this was one of the flags of
the struggle of the slain workers on November 15, 1922).
Arauz, Pablo Dávalos and their allies persist in confusing
the "outflow of currency" with the "capital flight". More
than 90% of the outflow of dollars corresponds to imports of goods and
services. All that a tax rate (5% or 27%) does is increase the cost of goods
and services for consumers in Ecuador.
Arauz proposes to "reduce the gross outflow of private
foreign currency by 10%"; and, furthermore, "a second goal would be
to repatriate $ 12 billion from the private sector." In other words, he
wants the State to intervene in private decisions, and in some way obligate the
“repatriation” of external assets held by the private sector. It is easy to
assume that threats of seizure, 27% taxes, and more restrictions on the private
sector will NOT create an incentive to attract foreign capital.
Moreover, such monetary and fiscal proposals would lead to
no new disbursements from the IMF program, with which the financial and fiscal
gaps of the next government would widen.
(*) Translation of an extended version of a column published
in the daily newspaper “El Universo” of Ecuador, on December 4th,
2020.
https://www.eluniverso.com/opinion/2020/12/04/nota/8070676/desdolarizacion-buena
